September 1, 2018

The Problem With One-Time Money

A report from the Marin Independent Journal in California. “The median price paid for a home in Marin County in July climbed to $1.1 million, up 14.9 percent from the $957,500 median posted a year earlier. At the same time, CoreLogic also reported that the number of new and resale homes and condos sold in Marin in July dipped to 291, down 14.4 percent from the 340 homes sold in July 2017. Marin real estate professionals said they are seeing buyers dropping out in the low end of the Marin market under $1 million due to either fatigue from failing to find a home that has both value and a lower price point, or simply being priced out of the market due to low inventory in the lesser price ranges.”

“‘Some people who thought they could afford to buy last year now suddenly are feeling they can’t afford to buy,’ Blaine Morris, a broker with Pacific Union International real estate in Kentfield. ‘The mix of properties still creates disproportionate illusion of price increases, as the mix is very tight under $1.25 million and especially under $1 million. People in those categories simply aren’t moving.’”

“Barry Crotty, a broker with Coldwell Banker Realtors in Greenbrae, said buyers seem to be wary after hearing news of interest rate hikes announced earlier this year by the Federal Reserve Bank. He has been seeing a decline in ‘over-asking’ offers, meaning buyers offering higher-than-the-asking price, and also less multiple offers.”

“Both Morris and Crotty said they are seeing less homes being purchased in Marin with all-cash offers and more with mortgage loans being granted by banks. CoreLogic analyst Andrew LePage said similar trends are evident across the Bay Area. He said the cumulative increase in mortgage interest rates over the past year was significant across the region. ‘The combination of price increases and higher mortgage rates, which have climbed more than half a percentage point over the past year, means the mortgage payment on the median-priced home in the San Francisco Bay Area has risen about 19 percent over the past year,’ he said.”

The Sacramento Bee. “Sacramento’s once hot housing market continued its cooling trend in July, with median prices dipping slightly in five of the six local counties. The local numbers mirror those in the Bay Area, where sales numbers and prices have begun to flatten in recent months in what some observers say is a natural plateau. Price increases over the last seven years have left most households statewide unable to afford a median-priced home.”

“In Sacramento County, the median price for home sales, including used and new, dropped marginally in July to $360,000 from $362,000 in June, according to CoreLogic. The recent flattening has fueled some speculation that home prices in Sacramento will face a dropoff. Placer was the only local county that saw its median price increase, going from $495,000 in June to $498,000 in July. El Dorado County’s median price dipped as well from $499,000 to $485,000. In the Bay Area, the median price dropped to $850,000 in July, down from the record high of $875,000 in May and June. The number of homes sold dipped 10.2 percent from the previous month.”

“Jordan Levine, an economist for the California Association of Realtors, said he sees a ‘market shift’ toward a slower growth period, where home prices will continue to rise but at a more pedestrian rate. On one hand, he said, mortgage interest rate increases can dampen buyer enthusiasm. But the economy overall remains solid. ‘We are at a 40-year low in unemployment and we are starting to see wage and income growth after a long hiatus.’”

“Builders in Sacramento, burned during the construction frenzy of the mid 2000s, remain cautious about adding new stock to the market.”

The Turlock Journal. “The City of Turlock’s sales tax revenue has continued to steadily decline for nine consecutive months according a recent report, replicating numbers that haven’t been seen since the Great Recession. Turlock’s sales tax revenue has consistently fallen since mid-2017 — a sharp decline which was last seen in 2008 and 2009, according to Maryn Pitt, assistant to the city manager for housing and economic development.”

“According to Pitt, the City has seen the greatest decrease in the building materials wholesale economic segment, which comes during a time when home construction across the country is beginning to slow down, as well as auto sales for both new and used vehicles. ‘The different segments can go up and down. When the economy was not so great, the restaurant segment fell off, and now we see that construction is way down,’ Pitt said.”

“Without consistent development, whether industrial or residential, sales tax revenue can take a hit. ‘It’s not the fact that we’re going to get sales tax every quarter from Target — we’ve been successful with that — but the problem is with the one-time money,’ Pitt said. ‘In the manufacturing sector, no one is buying equipment where we can actually collect that.’”

“While the City’s sales tax revenue numbers may look foreboding, they are ever-changing and unpredictable, Pitt reminded. Improvement is essential, as some of the City’s most critical services, like police and fire, hang in the balance. ‘We’ll get those numbers in September and see where we are,’ Pitt said. ‘If it’s down again, then that’s obviously a huge concern.’”




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40 Comments »

Comment by Ben Jones
2018-09-01 07:51:31

Hey, Mercury News:

‘Bay Area home prices fall — is it just a blip or a sign the market’s turning?’

‘An unexpected but long-awaited minus sign has emerged in the Bay Area housing market. No one knows yet if it will be around for a while, but real estate agents say the data is backed up by anecdotal evidence too.’

Comment by Ben Jones
2018-09-01 08:29:25

I’ll tell you another item the Mercury News failed to mention: the fact that downtown San Francisco construction has collapsed! The Chronicle and some TV stations tried to cover it up with the “construction costs have gone up too much” line, but I’ve never seen such an earthquake in California bubble reports. They won’t be able to ignore the fall out for long. And talk about sales tax decreases.

Comment by b
2018-09-01 09:04:49

are you referring to Condos, SFHs or both?

 
Comment by Ghost of Satoshi
2018-09-01 09:10:31

Chinese Money has dried up…this was never about the strong new middle class entering home-ownership. Just speculators trying to front-run the Chinese debt laundering machine.

Comment by Professor 🐻
2018-09-01 15:43:45

Also about liars and deniars using the “strong new middle class entering home-ownership” strawman to divert attention from the speculators trying to race out the exits of the burning theater before the masses catch on…

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Comment by Jingle Male
2018-09-03 10:57:58

My son just rented a home on the SF peninsula from a Chinese owner. 1,700 SF. He paid $1,400,000 in 2016. The rent is $4,200/month. After expenses, assuming he has no debt, he will earn 2% on his investment.

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Comment by Jingle Male
2018-09-03 12:00:56

I just looked it up. The Chinese owner has a $950,000 mortgage. His return on equity is a negative $20,000/year. He feeds his $430,000 investment every month and has a -4.7% ROI.

 
 
 
 
 
Comment by Mortgage Watch
2018-09-01 07:53:51

Centreville, VA Housing Prices Crater 10% YOY As Fairfax County Housing Bust Deepens

https://www.movoto.com/centreville-va/market-trends/

Comment by Professor 🐻
2018-09-01 15:45:32

CR8Rville?

 
 
Comment by Ben Jones
2018-09-01 07:56:59

‘the problem is with the one-time money’ …Improvement is essential, as some of the City’s most critical services, like police and fire, hang in the balance. ‘We’ll get those numbers in September and see where we are,’ Pitt said. ‘If it’s down again, then that’s obviously a huge concern.’

Yes, the one time money thing appears again. Long time readers will remember addressing this idea that building shacks doesn’t really add anything lasting to the economy, nor does artificial price increases in existing shacks. (Actually building shacks sucks money out because somebody has to keep up the roads, fire departments, police, etc).

And when it runs out, and it always does, you’ve got a “huge concern” without a solution. Are you ready down there Orange County? Cuz it’s coming.

Comment by Ghost of Satoshi
2018-09-01 09:13:15

Let’s get it over with….yes we’re ready.

 
Comment by Professor 🐻
2018-09-01 15:50:56

We’re out! Orange County pays final bankruptcy bill on July 1. The ride’s been wild
1994: Orange County declares bankruptcy Orange County Treasurer and Tax Collector Robert Citron was a popular guy before 1994. Re-elected seven times, he seemed to have a knack for making a little money go a long way. In December, 1994, it became obvious why. Citron had over-leveraged the county’s money in high-risk investments that worked for a while but eventually backfired, causing losses of $2 billion. On Dec. 6, 1994, Orange County declared bankruptcy becoming, at the time, the largest county in America to go bankrupt. Citron pled guilty to six felony counts and served five years of supervised probation.
By Teri Sforza
Orange County Register
PUBLISHED: June 30, 2017 at 3:00 pm | UPDATED: June 4, 2018 at 2:22 pm

Comment by rms
2018-09-01 16:10:24

“Citron pled guilty to six felony counts and served five years of supervised probation.”

He should have spent at least two years polishing Water Moccasins prior to his supervised probation.

 
Comment by rms
2018-09-01 16:19:01

“There was the homeless man in a miniskirt and fishnet stockings who stuffed oranges in his brassiere and wielded a plunger – a reminder that Orange County was going down the drain.”

I could easily dismiss this in San Francisco, but in conservative Orange county this is front page!

 
 
 
Comment by Lisa
2018-09-01 07:59:06

‘The combination of price increases and higher mortgage rates, which have climbed more than half a percentage point over the past year, means the mortgage payment on the median-priced home in the San Francisco Bay Area has risen about 19 percent over the past year,’ he said.”

Uh, and notice there’s no mention of any corresponding big increase in local wages that would justify this. And with the appreciation train slowing and about to go off the tracks, well, we all know where this is headed.

The $10,000 cap on SALT starting this year won’t help either. Plus rising health care premiums, more expensive homeowners insurance given wildfire risk, same for utilities. Bam.

Comment by Ben Jones
2018-09-01 08:04:11

‘the mortgage payment on the median-priced home in the San Francisco Bay Area has risen about 19 percent over the past year’

They’ve been reporting this for over a month without much fanfare. But consider how many people that drops out of the market.

‘Some people who thought they could afford to buy last year now suddenly are feeling they can’t afford to buy’

Comment by Professor 🐻
2018-09-01 15:54:08

They can still afford to buy…at nineteen percent below recent prices.

Comment by Carl Morris
2018-09-01 20:52:43

But when prices drop 19% to meet them then they’ll think that maybe if they wait longer it will get even cheaper. And the ones who only wanted to buy to ride the appreciation train won’t buy at all until they see prices headed back up. Seems like a bad combination…

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Comment by b
2018-09-01 09:28:23

Q: Do these ‘equity rich’ folks really know how HELOCs work?

I was with a group of work people at Happy Hour on Thu.

This one lady did not realize that for HELOCs at many large banks—- that they are paying interest only for the 1st 10 years. It is the 2nd 10 years that is the (principal) amortization period. When it was being explained to her (and she does the finances in her marriage), there was also a seemingly worried expression on 2 other people.

We worry about people paying off student, credit card loans. What about people taking out HELOC loans in the 2014-2018 and not realizing that they are only paying interest.

Comment by Mr. Banker
2018-09-01 09:35:14

“When it was being explained to her (and she does the finances in her marriage), … 😁

“… there was also a seemingly worried expression on 2 other people.”

😁

“We worry about people paying off student, credit card loans. What about people taking out HELOC loans in the 2014-2018 and not realizing …”

Not realizing …

“… that they are only paying interest?”

A nation of dummies.

 
Comment by rms
2018-09-01 11:01:23

“…there was also a seemingly worried expression on 2 other people.”

Did you remind them that California is a walkaway state?

 
 
 
Comment by Ben Jones
2018-09-01 08:01:29

Attention trolls:

‘The mix of properties still creates disproportionate illusion of price increases’

The median is a lagging indicator.

From the first link:

‘Crotty said sellers are also wary of getting “crushed” by capital gains taxes if they sell for a big windfall’

Wa? I thought you bay aryans were all about paying your fair share and helping out the needle users with a bagel, etc? Crushed? So dramatic!

Comment by Mr. Banker
2018-09-01 08:30:12

“Wa? I thought you bay aryans were all about paying your fair share and helping out the needle users with a bagel, etc? Crushed? So dramatic!”

“… helping out needle users with a bagel”

So I got on the net and, what the heck, decided to associate needles with bagels and ended up with this …

‘Bagel Head’ Saline Forehead Injections: Japan’s Hot New Beauty Trend? (VIDEO) | HuffPost

Check out the pictures.

https://www.huffingtonpost.com/2012/09/26/bagel-head-forehead-injections-japan-saline_n_1916188.html

Comment by Ben Jones
2018-09-01 08:43:38

‘Kern County May Be Country But They Ain’t Stupid’

Comment by hwy50ina49dodge
2018-09-01 14:55:53

Tehachapi has a new Tractor $upply … Nothin’ else matter$ much!

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Comment by Anonymous
2018-09-01 10:32:34

Holy moley!

 
 
Comment by Lisa
2018-09-01 09:32:17

‘Crotty said sellers are also wary of getting “crushed” by capital gains taxes if they sell for a big windfall’

I call BS on this one. Isn’t that the whole point of overpaying for a house? Having that big windfall to look forward to?

 
Comment by rms
2018-09-01 11:08:48

“…helping out the needle users with a bagel…”

And there better be generous dollop of Avocado spread on that bagel.

 
 
Comment by Doug
2018-09-01 08:15:57

Meanwhile, the cash cow/tech giants are shifting more and more jobs to other affordable locations. Even for those still in the Bay Area, the cash gift to the Corporations from the US Government in the form of tax cuts essentially went to Stock Buy Backs (hello, Apple!!). I didn’t notice in big increase in dividends announced with Q2 earnings. And I doubt, to Lisa’s point, the surplus went to salary increases.

 
Comment by Mortgage Watch
2018-09-01 08:16:09

Friday Harbor WA Housing Prices Crater 10% YOY As Seattle Area Economy Staggers Bigly

https://www.movoto.com/friday-harbor-wa/market-trends/

 
Comment by Boo Randy
2018-09-01 08:32:56

“Barry Crotty, a broker with Coldwell Banker Realtors in Greenbrae, said buyers seem to be wary after hearing news of interest rate hikes announced earlier this year by the Federal Reserve Bank. He has been seeing a decline in ‘over-asking’ offers, meaning buyers offering higher-than-the-asking price, and also less multiple offers.”

Well now, Barry, I think an alternative explanation is that all those Outliers seem to have proliferated into something that looks a lot like the incipient cratering of Housing Bubble 2.0, and now the herd is spooked.

 
Comment by Boo Randy
2018-09-01 08:37:02

“Jordan Levine, an economist for the California Association of Realtors, said he sees a ‘market shift’ toward a slower growth period, where home prices will continue to rise but at a more pedestrian rate.

Ah, the “permanently high plateau” a certain Irving Fisher confidently prognosticated in 1929. You stick with that story, John. Myself, I’m more of the “insanely overpriced CA housing is going to crater” school of thought.

Comment by Mr. Banker
2018-09-01 08:51:00

“Jordan Levine, an economist for the California Association of Realtors, said he sees a ‘market shift’ toward a slower growth period, where home prices will continue to rise but at a more pedestrian rate.”

Let’s take a look at this:

Just suppose that Jordan was to say something like:

“We see home prices going into a period of declining prices”.

What would one suppose would happen to Jordan’s cushy job of “Economist for the California Association of Realtors”?

Comment by Mr. Banker
2018-09-01 08:56:51

What do we have here? Why it is David Lereah.

Confessions of a former real estate bull - Jan. 5, 2009

Q. Were you wrong to be so bullish?

A. I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.

Q. The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?

A. My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.

Q. Any regrets?

A. I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.

https://money.cnn.com/2009/01/05/real_estate/Lereah.moneymag/

Comment by azdude
2018-09-01 09:30:03

these guys lie so much even they believe they own bs.

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Comment by Boo Randy
2018-09-01 08:49:58

The costs of buying a shack are rising 3X faster than the costs of renting. How ’bout that. Then there’s the intangibles, like being a popcorn-munching spectator with a ringside seat rather than a victim of the coming implosion of Housing Bubble 2.0.

https://www.marketwatch.com/story/the-cost-of-buying-a-home-is-rising-three-times-faster-than-the-cost-to-rent-2018-09-01?mod=MW_section_top_stories

 
Comment by Professor 🐻
2018-09-01 15:37:54

“Marin real estate professionals said they are seeing buyers dropping out in the low end of the Marin market under $1 million due to either fatigue from failing to find a home that has both value and a lower price point, or simply being priced out of the market due to low inventory in the lesser price ranges.”

So under $1 million is now low end? It seems as though the Fed’s housing market inflation scheme is proving wildly successful.

Comment by rms
2018-09-01 16:15:04

“It seems as though the Fed’s housing market inflation scheme is proving wildly successful.”

The fed know how to get young families started in life.

Comment by Professor 🐻
2018-09-01 22:45:50

Yep. Load em up with a pile of subprime student loan, automobile, and credit card debt, then use an Affordable Lending program to get them into a low downpayment loan to buy a house they cannot afford.

Comment by BubblevilleCA
2018-09-02 05:48:55

Uhmerika

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